China looks set to implement new cross border e-commerce (CBEC) rules on January 1 next year, according to New Zealand Trade and Enterprise (NZTE). This is likely to lead to additional regulation and taxes for supplement and functional food firms.

Tmall Global and JD Worldwide are some of the most popular CBEC platforms.

According to NZTE, the CBEC sales of vitamins, supplements, infant formula, skincare and cosmetics would be the first few products to be affected by new rules.

The CBEC sales of healthy foods will be regulated, albeit at a later stage.

The NZTE Greater China team issued an update on changes to the CBEC rules yesterday.

It claimed that the Chinese authorities would be making the relevant announcement soon.

NZTE said that they have checked with sources at China Customs Inspection and Quarantine Department, who have “all unofficially confirmed these changes will be implemented”​ on January 1 next year.

The information is also backed by KJ Bas, an Auckland based consultancy firm which focuses on the China market. It claimed that “the customs at local ports have received internal files” that contain changes to the CBEC rules.

“Now, sources confirmed that the interim period for infant formula and cosmetics would not be extended any longer,”​ Ricky Yang, managing director of KJ BAS said.

The Chinese authorities have not made any official announcements yet.

Yang also acknowledged that he “cannot guarantee the accuracy of the date (of new rules implementation)”​ but stressed that “it is coming”. ​

Potential changes​

The new rules will require infant formula and cosmetics sold via CBEC to go through registration with the CFDA before importation, Yang said.

“For example, after 1st Jan 2019 an unregistered cosmetics product will not be cleared at customs, no matter how many years it has been sold on Tmall and JD.”​

As for health food, he claimed that the authorities have not decided whether they should maintain the current registration requirements, or to require the manufacturers to undergo registration as well - a rule which is similar to that of infant formula.

The two most popular CBEC models – bonded zone and direct shipping with website connected with customs, would be affected by the regulatory change, according to Yang.

NZTE added that its China team would continue to obtain further insights about likely scenarios for product registration commencing in 2019.

What to do? ​

Yang has urged overseas businesses to prepare alternative strategies, should the CBEC channel turn restrictive in a few months’ time.

In particular, he urged businesses to review the update and seek further insights from other key stakeholders, such as:

The e-commerce platform used (i.e. category manager of dairy or cosmetics at Tmall Global)

The online trusted partner or distributor running the flagship stores

Local industry associations

This is because these organisations have their own regulatory and service teams that are also monitoring the situation.

“Transparency and certainty around the implementation of regulations remain as one of the great challenges when doing business in the China market,” ​he cautioned.

Unaffected areas​

Sales conducted via a website that is not connected to customs and personal daigou will continue to be treated as personal imports, Yang said.

Overseas companies are still allowed to sell their unregistered products on their own website and ship the goods directly to their Chinese customers.

However, this begets the issues of whether consumers are able to find the companies’ online stores.

Rationale​

The Chinese authorities are not seeking to stop CBEC, but to better regulate the industry and reap higher taxes with the new rules, according to Yang’s opinion.

“Since CBEC became such huge business, it is difficult for the authorities to ignore that so many overseas companies use this model to bypass national standards.”​

It is also likely that authorities are pressurised to regulate competition between companies which had products registered in China and others which have yet to do so.

“It is understandable that companies who have their products registered in China would also apply pressure to the authorities to stop their competitors.”​

Contrasting views​

Some consulting firms based in China also believe it is unlikely that the changes will happen by January next year.

Cathy Yu, general manager of food business division at Hangzhou REACH Technology Group Co., Ltd. (CIRS Group) told NutraIngredients-Asia ​that Chinese authorities would usually make an official announcement that is six months to one year prior to the actual implementation.

Since there are only three to four months left to Jan 2019, it is unlikely that the regulatory change will take place that soon.

She explained that the CBEC is a huge commerce vehicle and any abrupt stop would result in a great financial loss.

“If the transitioning period is too short, (the authorities) are unable to implement the new rules,” ​she added.

E-commerce giant Alibaba global team also do not believe that the changes will happen.

Background ​

China’s CBEC space experienced a sudden shakeup in April 2016, including tax hikes and a ban on certain goods.

Since then, 70% of CBEC companies have collapsed​ and the government decided to delay the implementation date of the new CBEC rules. At present, many CBEC goods are still regarded as personal trade, allowing overseas firms to bypass stringent requirements.

Besides extending the grace period, the State Council, China's Cabinet last month announced that comprehensive cross-border e-commerce experimental zones would be set up​ in 22 cities. The move was meant to transform and upgrade foreign trade.